251 F.

2d 696

PEERLESS INSURANCE COMPANY, a corporation,

Appellant,
v.
INLAND MUTUAL INSURANCE COMPANY, a corporation,
Appellee.
No. 7524.

United States Court of Appeals Fourth Circuit.

Argued November 20, 1957.
Decided January 6, 1958.
1

Robert W. Lawson, Jr., and Charles W. Yeager, Charleston, W. Va. (Steptoe &
Johnson, Clarksburg, W. Va., on brief), for appellant.

L. E. Woods, Jr., and C. F. Bagley, Jr., Huntington, W. Va. (Campbell, McNeer

& Woods, Huntington, W. Va., on brief), for appellee.

Before PARKER, Chief Judge, HAYNSWORTH, Circuit Judge, and R.

DORSEY WATKINS, District Judge.

R. DORSEY WATKINS, District Judge.

Inland Mutual Insurance Company (Inland) issued a policy to Lota H. Yeatts,

trading as Yeatts Transfer Company (Yeatts) against liability for personal
injuries arising out of the operation of insured vehicles to the extent of $15,000
for injuries to any one person in any one accident. Pursuant to a reinsurance
treaty with Peerless Insurance Company (Peerless), Inland retained $5,000 of
this coverage, and ceded the excess to Peerless. While the policy and
reinsurance treaty were in effect, Yeatts was sued by John J. Arms; during the
litigation an opportunity arose to settle the suit within the policy limits but this
was not done; a verdict substantially in excess of the policy limits was obtained
against Yeatts; Yeatts sued Inland for alleged negligence and bad faith in failing
to settle the Arms v. Yeatts suit; Inland settled the Yeatts suit, and brought this
action against Peerless to recover two-thirds of the amount so paid in such
settlement and associated expenses, and two-thirds of the expenses incident to
the defense of the Arms-Yeatts suit.

The district court, sitting without a jury, rendered verdict for Inland. The case,
one of first impression, is here on appeal from that judgment.

The Reinsurance Agreement.

7

On August 6, 1947, Inland and Peerless entered into a reinsurance treaty or

agreement, the relevant portions of which read as follows:

8"Article I.
9

"Classes of Business Reinsured:

10

"The Company will reinsure with the Reinsurer and the Reinsurer will accept
reinsurance from the Company as set forth in Exhibits `A', `B' and `C', which
are attached hereto and made a part of this Agreement, such Exhibits being
entitled for the purpose of identification as follows:

11 "Exhibit A Excess Reinsurance of

Third Party Personal Injury
Liability Business * * *"

"Article III.
12
13

"Liability of Reinsurer:

14

"The actual payment by the Company of any loss shall be a condition precedent
to any recovery under this Agreement, and subject to such condition, the
liability of the Reinsurer shall follow that of the Company in every case and
shall be subject in all respects to all the general and special stipulations, clauses,
waivers and modifications of the Company's policy, binder, or other
undertaking, and any endorsements thereon.

15

"No error or omission in reporting any risk reinsured or marked to be reinsured

shall invalidate the liability of the Reinsurer; but the reporting of reinsurance
not authorized by this Agreement or by special acceptance hereunder shall not
bind the Reinsurer except for the return of premiums paid therefor."

"Article IV.
16
17

"Claims:

18

"The Company will advise the Reinsurer promptly of all claims and any

subsequent developments pertaining thereto, which may in the Company's

opinion develop into losses involving reinsurance hereunder. Inadvertent
omission in dispatching such advices shall in no way affect the liability of the
Reinsurer under this Agreement, provided the Company informs the Reinsurer
of such omission or oversight promptly upon its discovery.
19

"When so requested, the Company will afford the Reinsurer an opportunity to

be associated with the Company, at the expense of the Reinsurer, in the defense
or control of any claim or suit or proceeding involving this reinsurance, and the
Company and the Reinsurer shall cooperate in every respect in the defense of
such suit or claim or proceeding.

20

"All court costs and expenses, including interest on judgments, paid by the
Company, (excluding salaries of permanent officials and employees of the
Company) connected with any resistance to, investigations of, or negotiations
concerning settlement of such claims, shall be apportioned in proportion to the
respective interests as finally determined."

"Exhibit A
21
Excess Reinsurance of Third Party Personal Injury Liability Business
22
"Section 1.
23
24

"Cover:

25

"As respects Third Party Personal Injury Liability Business of the Company
(except as hereinafter excluded), becoming effective at and after 12:01 a. m.,
August 1, 1947, (including renewals), the Company will pay the amount of
loss, including damages for care and loss of services, arising out of personal
injury to or death of one person in any one accident (hereinafter called the First
Limit), and, subject, to the foregoing provision respecting each person, the
amount of loss, including such damages, arising out of personal injury to or
death of two or more persons in any one accident (hereinafter called the Second
Limit), set forth below as `Company's Retention'; and the Company will
reinsure with Reinsurer on the Excess basis and the Reinsurer will accept all
excess loss above the primary loss paid by the Company, provided the loss to
the Reinsurer shall not exceed the amounts set forth below as `Maximum
Amount to be Reinsured With Reinsurer:'

26
"Company's Retention

Reinsured with Reinsurer

Maximum Amount to be

First
Limit
$5,000.

Second
Limit

First
Limit

$10,000.

$95,000.

Second
Limit
$290,000."

"Section 3.

27

"Premium:

28

"For reinsurance provided hereunder the Company shall pay to the Reinsurer a
premium determined by applying to the premium charged by the Company for
basic limits of coverage the appropriate factors contained in the excess tables of
the Standard Manual approved by the National Bureau of Casualty & Surety
Underwriters."

The Liability Insurance Policy.

29

On March 28, 1951, while the reinsurance agreement was in effect, Inland
issued to Yeatts a standard vehicle liability policy with a limit of $15,000 for
injury to any person in any one accident. The pertinent portions of the policy
provide:

30
"Inland
Mutual Insurance Company (A mutual insurance Company, herein called the
Company)
31

"Agrees with the insured, named in the declarations made a part hereof, in
consideration of the payment of the premium and in reliance upon the
statements in the declarations and subject to the limits of liability, exclusions,
conditions and other terms of this policy:

"Insuring Agreements
32
33

"I. Coverage A Bodily Injury Liability

34

"To pay on behalf of the insured all sums which the insured shall become
legally obligated to pay as damages because of bodily injury, sickness or
disease, including death at any time resulting therefrom, sustained by any
person, caused by accident and arising out of the ownership, maintenance or
use of the automobile.

35

"II. Defense, Settlement, Supplementary Payments

36

"As respects the insurance afforded by the other terms of this policy under
coverages A and B the company shall:

37

"(a) defend any suit against the insured alleging such injury, sickness, disease
or destruction and seeking damages on account thereof, even if such suit is
groundless, false or fraudulent; but the company may make such investigation,
negotiation and settlement of any claim or suit as it deems expedient;

******
38
39

"(c) pay all expenses incurred by the company, all costs taxed against the
insured in any such suit and all interest accruing after entry of judgment until
the company has paid, tendered or deposited in court such part of such
judgment as does not exceed the limit of the company's liability thereon; * * *"

40

Under the reinsurance agreement, Peerless was ceded the excess $10,000, and
was paid the appropriate portion of the entire premium paid by Yeatts.

Arms v. Yeatts
41

On April 20, 1951, while the liability policy and reinsurance agreement were in
effect, a collision occurred in Fairfax County, Virginia, between a truck owned
by Yeatts and operated by Yeatts' employee, and an automobile driven by John
J. Arms, in which Arms sustained severe permanent injuries. Inland, on April
23, 1951, received a preliminary notice of the accident from a Washington, D.
C., adjusting firm. Inland set up a reserve of $1,500. On April 30, 1951, upon
receipt of a further report from the adjusting company, Inland increased the
reserve to $3,500. After further investigations and reports, Inland, on
September 21, 1951, again increased its reserve, this time to $7,500, and for the
first time notified Peerless of the accident on a "Preliminary Loss Advice" form
provided by Peerless.

42

On October 4, 1951, Sherwood, Assistant Secretary of Peerless, and charged

with supervision of reinsurance accounts and the establishment of Peerless
reserves thereon, came to Inland's office, and reviewed several files, including
the Arms-Yeatts file. Sherwood discussed the Arms case with Talbott, Inland's
claims supervisor. Sherwood was an attorney and a former claims adjuster,
having worked for some years in Virginia, where the Arms injuries occurred.
He regarded the Arms case as one of liability. On the other hand Talbott, and
his superior, Polk, always considered the case as one of no liability, primarily
because of what they believed to be contributory negligence by Arms as a

matter of law. Before his departure, Sherwood put a memorandum in Inland's

file on Yeatts, in which he expressed the opinion that "This is undoubtedly a
liability case * * *."
43

Sherwood suggested that a home office man of Inland be sent to Delaware,

where Arms was then residing, and that it be explained to Arms' attorney that
Inland's policy was only for $15,000. On December 1, 1951, when Sherwood
learned that his recommendation had not been followed, he raised Peerless'
reserve from $3,000 to $9,000. On December 10, 1951, an adjuster for Inland
wrote Sherwood, giving a rsum of the medical reports on Arms, indicating
permanent total disability, and reporting that Arms' special damages then
amounted to $2,565.

44

Arms' attorneys had initially used a settlement figure of $60,000-$65,000. On

December 18, 1951, Inland inquired if settlement could be effected for $6,500,
but this was declined. It does not appear that Peerless was advised of this
development.

45

On February 4, 1952, Arms sued Yeatts in Fairfax County, Virginia, claiming

damages of $125,000. Inland retained the law firm of Barbour, Garnett, Pickett
& Keith, and Pickett of that firm, a competent and experienced trial lawyer in
negligence cases, assumed primary responsibility. Inland suggested that the
case be removed to the United States District Court, but accepted Pickett's
recommendation to the contrary. On February 14, 1952, Talbott wrote
Sherwood, advising of the institution of suit, and the employment of Pickett.
Peerless never objected to such employment, and did not avail itself of its right,
under Article IV of the reinsurance treaty "to be associated with" Inland "in the
defense or control of any claim or suit."

46

On March 31, 1952, Talbott again wrote Sherwood, stating that he was asking
Pickett for a review of the file and his appraisal of the case. Talbott also
referred to a rumor that Arms was not badly hurt, but expressed doubt as to its
accuracy, since "our own physician's report was so definite as to seriousness of
this man's injuries * * *."

47

Talbott also wrote Sherwood on June 11, 1952, enclosing a copy of a letter of
March 261 from Inland's attorneys, "which sets out their opinion as to this
claim." It also quoted from a letter from them of March 28, stating that
McCandlish (Yeatts' attorney) agreed that "Arms was guilty of gross
negligence" which "should prevent a recovery, but he is fearful that if the Court
should allow the case to go to the jury a large verdict would be returned. Of

course, he is trying to play safe for his client and would like to have the case
settled within the limits of the policy, but I am still of the opinion that the case
should be fought to the limit, and I am further of the opinion that if the
evidence develops along the line of statements in the file, the Court will grant a
motion to strike the evidence which will have the effect of taking the case away
from the jury."
48

On June 12, 1951, Polk wrote to Sherwood, referring to Peerless' reserve of

$9,000, stating that liability was questionable and the case could probably be
settled for $12,500. He concluded, however, that in view of the serious injuries
it was almost impossible to predict what a jury would do on the defense of
contributory negligence.

49

The Arms-Yeatts case came to trial on October 29, 1952, on which day the
testimony was completed. The next morning, before counsel appeared in court
to discuss proposed instructions to the jury, Arms' counsel for the first time
receded from his settlement figure of $60,000 and indicated a willingness to
settle for $20,000. Yeatts' attorney, McCandlish, as was apparently Pickett, was
strongly of the belief that the case could be settled for $17,500. Yeatts was
willing to contribute $2,500 to a $17,500 settlement, and McCandlish warned
Pickett that Yeatts would hold Inland liable for any recovery in excess of the
policy limits of $15,000. Pickett telephoned Talbott and advised him of this
development, but expressed the opinion that the verdict would be for the
defendant, or that at least some of the jurors would use Arms' contributory
negligence as grounds for a low verdict. He refused to recommend a settlement
above $7,500, and characterized even that figure as a "gift".

50

Talbott discussed this with his superiors, who told him to follow Pickett's
advice, since he was much more familiar with the progress of the trial than
anyone at the home office. In further explanation, Polk later testified that he
agreed with Talbott on the absence of liability, and that the abrupt reduction of
plaintiff's settlement figure from some $60,000 to $17,500, supported this
judgment and led Polk to believe that a still lower figure would be accepted.

51

Talbott then telephoned Sherwood in New York. Both men dictated

memoranda of the conversations immediately after the conclusion of the call.
The memoranda are in substantial agreement as to the nature of the
negotiations,2 and the ultimate authorization. Talbott's memorandum in part
reads:

52

"I then called Mr. Sherwood and he said he would go along with any

recommendations we had to make and I suggested that if the suit could be

settled for $7500.00 we had better go ahead and settle same to which he agreed.
I then called our attorney and told him that we would reluctantly pay as much
as $7500.00 to settle the suits * * *."
53

This subject is covered in Sherwood's memorandum as follows:

54

"Mr. Talbott stated his attorney recommended a top of $7500 or let the case go
to the jury for a decision, as he was confident of winning the law suit.

55

"Mr. Talbott stated that he did not want to recommend payment of $7500 and I
replied that it would be agreeable to us to pay $7500 and also left the decision
in his hands as he has direct control of the case."

56

Both memoranda reflect Sherwood's suggestion that if the case went to the jury,
an instruction should be requested that any amount awarded would be free of
income taxes.

57

Talbott's and Sherwood's testimony in this case amplifies their memoranda as to

the scope of the discussions. Talbott testified that in the October 29, 1951
telephone call, he and Sherwood repeated their positions as to liability,
Sherwood again stating that the case was a dangerous one, but not saying that
Inland should pay up to the policy limits. Sherwood agreed that he and Talbott
in this conversation maintained their respective evaluations, Talbott still
contending that there was no liability; Sherwood insisting that the case was a
very dangerous one in that there were severe injuries, high special damages, and
liability. He said he told Talbott "with the injuries that bad, and the facts which
I had been shown from the very beginning, and told him to settle and save
anything he could on this policy, but whatever he did was in his province and in
his control. Nothing I could do."

58

The $7,500 counter-offer was rejected. The case went to the jury, which
promptly returned a verdict for Arms in the amount of $75,000. Motions for
judgment n. o. v., for a new trial, and for writs of error were unsuccessfully
made. Inland paid Yeatts $15,000, and Peerless paid Inland $10,000. Arms
attempted to collect from Yeatts, and issued writs of attachment against some of
Yeatts' trucks. The attachments were lifted on Yeatts making a payment on
account, and agreeing to make further installment payments. Yeatts sued Inland
in the Hustings Court of the City of Richmond for $60,000, the difference
between the $15,000 face amount of the policy, and the judgment against
Yeatts for $75,000. Because of problems of venue and jurisdiction, this case

was dismissed by the plaintiff.

59

Thereafter, on January 6, 1954, Yeatts sued Inland in the Virginia State courts,
in a declaratory judgment proceeding, in which Yeatts sought to have Inland
declared liable for $60,000, the excess of the Arms judgment over Inland's
policy, and $100,000 damages to Yeatts' business occasioned by Arms' efforts
to collect his judgment. The asserted basis of liability was Inland's negligence
and bad faith in failing to settle the Arms litigation for $17,500. The case was
removed to the United States District Court for the Eastern District of Virginia.

60

Peerless was promptly notified of the declaratory judgment suit. It denied

liability and declined to participate in the litigation, but suggested that thought
be given to joining Pickett as a third-party defendant. Inland regarded this as
bad strategy, and it was not done. A motion for summary judgment was
denied3 , and the case was set for trial by a jury. Before trial a settlement was
worked out (of which Peerless was advised) under which Inland paid Yeatts
$27,500 in full settlement of the Yeatts suit, and Yeatts paid Arms this $27,500
together with an additional $30,000 (the face amount of the policy together with
$15,000 contributed by Yeatts), or a total of $57,500, for the release of the
Arms judgment of $75,000.

61

The instant suit was then commenced by Inland against Peerless, in the United
States District Court for the Southern District of West Virginia. Inland initially
claimed the full $27,500 it paid in settlement of the Yeatts declaratory
judgment suit. Later this was reduced to two-thirds of that amount. Inland also
claimed Peerless' "proportionate share" of the expenses of investigating and
defending the Arms-Yeatts suit and the Yeatts-Inland suit.

62

Peerless answered, denying liability for any amount except two-thirds of the
costs of defending the Arms-Yeatts suit. By its answer and special defenses,
Peerless contended that (a) Inland did not keep Peerless fully informed of the
Arms claim, or the progress of the litigation; (b) that direct and sole control
over the Arms case was vested in Inland, and that there was no occasion to
clear any settlement or obtain Peerless' permission to any settlement within the
policy limits of $15,000; (c) that Peerless' maximum liability under the Yeatts
policy (exclusive of expenses) was $10,000, which Peerless had paid; and (d)
the Yeatts-Inland suit was based upon alleged negligence and bad faith of
Inland in failing to settle the Arms suit; that Inland in said suit and at all times
has denied negligence and bad faith; that without any adjudication on that
point, Inland paid $27,500; that if Inland paid $27,500 because of the belief it
was guilty of negligence and bad faith, there would be no coverage under the
reinsurance treaty; and if Inland denied negligence and bad faith "but made the

settlement for some other reason" there would be no coverage under the
reinsurance treaty.
63

When the case came on for trial before the District Judge without a jury,
extended opening statements were made, in the course of which the court
several times defined the issues, although not always in precisely the same
terms. In substance, the issues so determined, with the concurrence of counsel,
were: (1) Was Peerless adequately informed of Inland's handling of the Arms
claim; and (2) was Peerless' participation in the Arms-Yeatts case settlement
negotiations such as to impose liability when the recovery in that suit exceeded
the policy limits.4

64

In the course of the fixing of the issues, counsel for defendant stated that they
were waiving the defense based upon the contention that the question of bad
faith and negligence had never been judicially determined; and stated that it
would be immaterial whether Inland paid $27,500 to settle the Yeatts-Inland
suit as a matter of business judgment, or in satisfaction of a judgment obtained
in that litigation; that the payment was not covered by the reinsurance treaty,
irrespective of what Inland did or did not do.5 This waiver materially reduces
the scope of review as well as the difficulty of solution of the problems
remaining for determination.

Inland's disclosures to Peerless.

65

We agree with the finding of the District Court that "Looking at the evidence as
it developed in 1951 and 1952 * * * Inland kept Peerless fully and adequately
informed of the significant developments in the case of Arms v. Yeatts."

66

First. Article IV of the reinsurance treaty, quoted in full above, expressly

excuses inadvertent omission in promptly advising Peerless "of all claims and
any subsequent developments pertaining thereto, which" in Inland's opinion
may "develop into losses involving reinsurance * * *" if such information is
promptly given upon discovery of the omission. While the initial report of
claim was tardy, it is consistent with Inland's early estimate that the case would
not involve over $5,000.

67

Second. At his October 4, 1951, visit, Sherwood of Peerless made an appraisal

of the seriousness of the case from which he never receded. At least from then
on, Peerless was promptly advised of developments, which were few, and
relatively insignificant, until October 29, 1952, when Arms for the first time
reduced his settlement figure from $65,000. Certainly on that date Sherwood

had all the information possessed by Inland.

Liability as between Inland and Peerless.
68

Inland's obligations to Yeatts under the contract of insurance were "to pay on
behalf of the insured all sums which the insured shall become legally obligated
to pay as damages because of" personal injuries sustained by any person, and
"caused by accident and arising out of the ownership, maintenance or use of the
automobile" involved in the collision with Arms' automobile; to defend any suit
against Yeatts with respect thereto, "even if such suit is groundless, false or
fraudulent; but the company may make such investigation, negotiation and
settlement of any claim or suit as it deems expedient;" and to "pay all expenses
incurred by" Inland.

69

Article III of the reinsurance treaty provides, in part, that:

70

"The actual payment by the Company [Inland] of any loss shall be a condition
precedent to any recovery under this Agreement, and subject to such condition,
the liability of the Reinsurer [Peerless] shall follow that of the Company in
every case * * *." (Emphasis supplied.)

71

Since the obligation of Inland was to defend any suit against Yeatts, and it had
the right to investigate, negotiate and settle any claim or suit, and as the liability
of Peerless followed that of Inland in every case, upon actual payment of loss
by Inland, the question is whether or not the payment by Inland of $27,500 and
expenses in the Yeatts v. Inland suit, was a loss or expense of Inland under its
policy insuring Yeatts.

72

The parties claim, and the district court agreed, that the question whether
Peerless is liable under the facts in this suit, is one of first impression. Peerless
in denying liability relies primarily upon (a) inferences which it seeks to have
drawn from an article in 67 Harvard Law Review 1136, 1150, Keeton, Liability
Insurance and Responsibility for Settlement; (b) the contention that the
decision not to settle (or endeavor to settle) for the policy limits plus the
amount the insured was ready and willing to contribute was the decision of
Pickett, the agent solely of Inland; and (c) that Peerless and Inland were not coadventurers or co-principals but that responsibility for defense, investigation,
negotiation and settlement was vested exclusively in Inland, Peerless being
obligated only, in any event, to pay $10,000 plus its proportionate share of
expenses. Inland insists that the provision that the liability of Peerless shall
follow that of Inland in every case, is applicable to the facts in question; and in

support thereof cites an address by the Vice President of American Mutual

Reinsurance Company, who is also an attorney, at the annual meeting of the
Insurance Section of the American Bar Association in Dallas, Texas, in 1956.
73

In the Keeton article it is suggested that the question of liability of the

reinsurance carrier in excess of the stated amount ceded is dependent upon
whether the control of the "settlement decision" is with the "contract company"
or with the reinsurer.

74

As to the status of Pickett, it is clear that he was selected by Inland, but Peerless
never at any time objected. Peerless recognizes its obligation to pay two-thirds
of his fee charged to and paid by Inland, which included his services in the
Arms-Yeatts litigation, including investigation, trial and presumably settlement
negotiations; nor did Peerless seek to exercise its rights "to be associated with
the Company * * * in the defense or control of any claim or suit or proceeding
* * *" by appointment of its own counsel (which it had done in other cases
arising under the reinsurance treaty).

75

Inland's position is supported by the following portion of the address at the

1956 Dallas meeting:

76

"Next, assuming that the policy limits are sufficient to exceed the reinsured's
retention and the matter has been adequately reported to the reinsurer and it has
agreed with the reinsured to reject the claimant's offer to settle for an amount
within the policy limits (and perhaps even within the reinsured's retention),
then I believe that the reinsurer by reason of its acquiescence in the defense
strategy, has become a party to the reinsured's negligence or bad faith, or both,
in the defense of the claim even though not actively engaged in the defense. It
stood to profit by successful defense, and for the same reason should stand to
lose by the adverse outcome, and should thereby indemnify the reinsured
accordingly, or be estopped from denying liability under its contract of
indemnification."

77

In this case, Inland had no6 interest in persuading Peerless not to settle within
the policy limits. The $7,500 offer exhausted Inland's retention of $5,000. In
fact, the settlement of the Arms claim for $15,000 would have been more
advantageous financially to Inland than would settlement of the claim for
$7,500. Expenses were to be apportioned between Inland and Peerless "in
proportion to the respective interests as finally determined." Therefore, in a
$7,500 settlement, Inland would bear two-thirds of the expenses of defense,
investigation, negotiation and settlement. If the case had been settled for

$15,000 (plus the insured's contribution) Inland would have paid only one-third
of such expenses, and Peerless would have borne two-thirds. There was
therefore no occasion for Inland, for ulterior reasons, to have attempted to
mislead Peerless, or to refuse to settle within the policy limits.
78

Therefore, we are not here concerned with, and hence express no opinion as to,
what might have been the rights, obligations and liabilities of Inland and
Peerless inter sese if Inland had held back from Peerless any significant
information, or if Inland had refused to settle within the policy limits without
consulting Peerless, or if Peerless had recommended settlement within the
policy limits, and Inland had refused.

79

Our holding is that, under the facts of this case, where Peerless knew as much
about the Arms case as did Inland; where Peerless' appreciation of the risks was
different from and sounder than Inland's; where Inland had already committed
itself to $5,000, the risk retained by it, and stood to gain rather than lose by a
settlement within the policy limits; and where Peerless was freely and frankly
consulted by Inland, and Peerless left the decision in Inland's hands, that
decision became the decision of Peerless as well as Inland; Peerless is bound
along with Inland by that decision whether sound or unsound, favorable or
unfavorable; and that as the liability of Peerless "shall follow that of" Inland,
Peerless is liable for two-thirds of the cost to Inland of a concededly proper
settlement of the Yeatts-Inland litigation. In defending the action against
Yeatts, the companies were unquestionably engaged in a joint enterprise
(Chisholm v. Gilmer, 4 Cir., 1936, 81 F.2d 120, 124), the losses arising from
which should be borne in accordance with their respective interests in the
enterprise.

80

The judgment of the district court accordingly is affirmed, with costs to the
appellee.

81

Affirmed.

Notes:
1

Not in the record on appeal

Both memoranda recognize that the only offer from Arms was $20,000, but
McCandlish and Pickett assumed the case could be settled for $17,500, and this
entire litigation has proceeded on such assumption

The record indicates that the District Judge expressed considerable doubt
whether the complaint alleged facts constituting negligence or bad faith, but felt
that disputed issues of fact were raised, precluding summary judgment

The court suggested that involved in this second issue was the question of
whether or not Pickett, who represented Inland in the Arms suit, was "also the
agent of Peerless". In its opinion now reported in D.C., 152 F.Supp. 506, the
court stated this question as a separate issue. In their briefs and argument, the
parties have not considered it necessary to treat this as an independent cause of
action or defense. The view we take of the case will not require any extended
discussion of the matter

To make assurance doubly sure, counsel for Peerless in the argument on appeal
was asked again about the waiver of this defense, and repeated that no defense
was based upon the fact that the question of bad faith and negligence had not
been (and now never could be) judicially determined

Under the reinsurance treaty, Inland would be entitled to receive a fifteen

percent contingent commission on net profits accruing to Peerless on business
covered by the reinsurance treaty
The district court correctly found that Peerless had introduced no evidence that
a saving of $7,500 on this particular account would have resulted in any
commission to Inland, since accountings were on an annual experience basis,
with provision for subsequent adjustments.